Essay

The UK construction industry contributes £90 billion to the economy while this sector
contributes 10% to employment rate in the UK. However, the prevailing situation of the
economy reshapes the construction industry accordingly. E.g. business cycles; recession and
boom have a different implication on the sector, also economics policies play role in the
development of the sector such as, expansion and contraction, tax rates, etc. In simple words,
every project has to go through all these steps discussed in the examples section to get
completed while there are internal and external forces which put the impact on the project. So
every project incurs some social cost which is not included in the monetarily total cost of the
projects or economic cost. In general, there are approx. 40 other industries which are linked
with the construction industry. The government often intentionally start major projects to
create seasonal employment which can enable labour to earn.

Economics and the built environment incorporate the economic tools on the
construction industry which provides a better analysis for built environment answering
essential economic problems; what, how, and for whom to produce? The first economic
principle is the demand and supply mechanism which shows the current situation while
economists also forecast using this principle. The resources are scarce and need optimal
utilization. Even within this industry, there are much concerns regarding micro-management
which needs attention. Under economics, the construction sector is mainly concerned with
derived demand which means that one of the factors of production may be dependent on
demand from consumers. Assume that if demand for rental houses decreases, it means that
more people are looking for purchasing homes over living on rent; this will decrease the
rental value of certain houses. As demands will go down the rental values will also decline
until at a certain point (equilibrium) where people will prefer living on rent.

Public and private investment in the construction industry would be a profitable

venture while it will also facilitate consumers. All over the world, the new model “Public-
private partnership” has been adopted in many areas, which proved to be beneficial for the
State; in terms of facilitating citizens, private sector; in terms of profit maximization and for
the masses; who receives service or good at low cost with better quality, the health sector is
one of the best examples for it. In the construction sector, this could be applicable if the
government join hands with the private sector. The primary aim of any government is
“welfare” while the private sector always seeks profit. Moreover, it will share the burden of
the public sector, because the shelter is the merit good and government is directly responsible
to provide adequate housing and proper infrastructure to its citizens, as alone it is difficult for
the government to achieve this because it also has other sectors to facilitate like education,
health sector, etc.

On the other hand, the partnership with the government would be beneficial for the private
sector to grow in this sector, as this will increase chances for the private sector to earn profit
in one or many ways. At first, the competition among private companies will set a benchmark
to not compromise on quality. Secondly, there will be less insecurity for any unforeseen
events and this will also increase the efficiency towards work. As a result, every company or
individual will get a chance to work according to their capacity and best utilization of skill.
Ultimately, the economy will sustain and a circular flow of income will also push
sustainability.

So, it is a very useful approach that has more benefits over cost if refer to cost-benefit
analysis, however, some technical and legal aspects need a clear understanding from both
parties to develop and analyse before involving in it. Usually, there is a public entity that
could represent any of these; federal, state, local and the other party is a private partner, the
roles and workload depend on the type of project but very often private party is responsible
for hiring, and supervising the contractor also it includes financing, designing and
maintaining the project. A common example of this is; highways, bridges, parking facilities,
etc. The public-private partnership permits the investment cost to expand the above project’s
lifetime. It reduces both costs; construction cost and overall life-cycle cost. The efficiency in
government investments increases due to partnership which allows the government to
allocate funds to other areas. The combined efforts allow both parties to share the burden and
to focus on their expertise only which increases the efficiency at work.

Benefits in result of Public and private partnership for construction industry in US has gain a
lot of attention considering the positive economic outcomes in the region. For example;
According to (West, 2011) previously in US the main partnerships between public and
private entities focused on roads, light rail, project related water and solid waste projects. A
project related to ‘waste water plant’ in Rockland County, in the Metropolitan New York area
is the perfect example to understand the importance of PPP which established an advanced
waste water facility which refines the water to the extent near to drinking water quality.

Another example is the success story in the U.S history is a social infrastructure project
which was expansion of a University campus to 1.2 million gross-square-foot namely “UC
Merced 2020” which started operation on June 1 (CISION, 2020). It allowed the University to
administer and deliver quality education to 10,000 more students offering them chance to
engage in exceptional research opportunities. The total cost of project was estimated to be
$1.3 billion approx. while its benefits in terms of cost and utility are very high in long term.
The timely completion of the project (2020) improved the UC Merced’s response to COVID-
19 pandemic (Chancellor, Brostom). According to Bonner (2020) this on time, on budget
completion of project proved the validity of PPP and further increased its demand.

The economic benefits on the region (U.S) are very positive as it brings investment
and uplift the productive output. Considering the example stated above, the expansion project
of University enabled life-time public services including teaching, research project and grants
which will play part in economic efficiency, also the other staff (workers at hostel, mess,
laundry etc.) which will facilitate 10,000 students found employment opportunities. The
students will pay fees in return of all these facilities which will generate revenue and the
whole cycle of circular flow of income has established. Another long term aspect is that, the
students after passing out will become productive members of society and will take part in
economic activities instead of becoming burden on government. On the other hand, the
private companies in the region helped public sector with their expertise through technology
and innovation in order to complete the project and got rewarded for their services which
increased their revenue allowing them to further invest in technology.

According to a report from “Star America Infrastructure Fund”, (Plangrid, 2019) the PPP
projects as compared to traditional procurement project were delivered on time and on budget
and analysing the report, following are the benefits (economic and social) of PPPs.

1. Optimal productivity utilization

2. Lower cost
3. Spreads cost overtime
4. Less risk for citizens and public sector

The legal and paperwork in public-private partnership refers to ‘construction bonds’ (bid
bonds, payment bonds, performance bonds) which is a legal entitlement and agreement
between both parties which restricts them to compile the rule and regulation. Hence, a public-
private partnership in the construction sector must be adopted to boost the economy while
using the best use of scarce resources.

Profit maximization in the construction sector has several different ways but mostly it lies in
cost-cutting, this has to be done very intelligently, but it doesn’t mean that to compromise on
quality. E.g. a company constructing a bridge will need concrete as raw material, now if it
purchases it at the best lower cost in the market ceteris paribus, it will save cost which
ultimately will be included in profit. Or a company involved in renovating an old house if use
creative ways to renovate can minimize cost. The purpose of a feasibility report before
signing any project is; to analyse all aspects and then reflect on cost and profit, if it suits the
situation then go for it otherwise there would be a loss. Recall PPP (public-private
partnership), the government maximizes profit in terms of ‘welfare’, that’s why it does not
hold valid in case of government but for a private company in a highly competitive market.
References

1. Financier Worldwide. 2011. Public-Private Partnership Opportunities In The US — Financier

Worldwide. [online] Available at: <https://www.financierworldwide.com/public-private-
partnership-opportunities-in-the-us#.X_bUoimSkdU> [Accessed 7 January 2021].

2. Prnewswire.com. 2020. Largest Public-Private Partnership Social Infrastructure Project In

U.S. History Completed At UC Merced. [online] Available at:
<https://www.prnewswire.com/news-releases/largest-public-private-partnership-social-
infrastructure-project-in-us-history-completed-at-uc-merced-301080727.html> [Accessed 7
January 2021].

3. PlanGrid Construction Productivity Blog. 2019. Building 201: What Are Public-Private

Partnerships (P3)? - Plangrid Construction Productivity Blog. [online] Available at:
<https://blog.plangrid.com/2019/01/building-201-what-are-public-private-partnerships-p3/>
[Accessed 7 January 2021].